What You Need to Know about FinCEN’s New Anti-Money Laundering Efforts
Law enforcement agencies and the financial sector in the U.S. devote considerable time and resources to combating money laundering. In March, the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury issued Global Targeting Orders (GTOs) requiring specific title companies to identify natural persons with a 25 percent or greater ownership interest in a legal entity making an all-cash residential real estate purchase over $3 million in the borough of Manhattan in New York or over $1 million in Miami-Dade County, Fla.
FinCEN discovered that some of the covered transactions were linked to possible criminal activity by beneficial owners of shell company purchasers. As a result, FinCEN expanded the GTOs to additional geographic areas, which require title companies in those areas to comply with the GTO data collection and reporting requirements. Effective August 28, 2016 through February 23, 2017, the expanded GTOs cover the following geographic areas:
- $500k and above – Bexar County, Texas
- $1 million and above – Miami-Dade, Broward and Palm Beach counties, Fla.
- $1.5 million and above – New York City Boroughs of Brooklyn, Queens, Bronx and Staten Island
- $2 million and above – San Diego, Los Angeles, San Francisco, San Mateo and Santa Clara counties, Calif.
- $3 million and above – New York City Borough of Manhattan
The GTOs do not impose any new obligations on real estate professionals; however, real estate professionals are included in the non-financial business sector category that may encounter money laundering activities. It is important to be aware of the GTO and understand that covered title companies may consult with real estate professionals to obtain information to comply with the order. Such communications should not affect the real estate sales transaction, as title companies are not required to report GTO covered transactions to FinCEN until 30 days after closin
The National Association of REALTORS® (NAR) collaborated with the U.S. Department of Treasury to develop voluntary guidelines to increase real estate professionals’ awareness of the potential money laundering risks surrounding real estate transactions. The guidelines educate real estate professionals about red flags to be aware of during a real estate transaction and customer due diligence practices. Red flags may include large, unexplained distances between the location of the property and the buyer, unusual involvement by third parties, unusual sources of funding, or large amounts of cash being used for purchase.
If red flags are present, a real estate professional may request information from the customer, such as a driver’s license or passport to confirm their true identity. If a legal entity, such as an LLC, is involved, a real estate professional may try to identify who controls or owns the entity. Real estate professionals may also discuss with senior management any situation that raises red flags and solicit help in monitoring and thoroughly evaluating the circumstances surrounding the suspicious activity.
While recent FinCEN actions exclude explicit requirements for real estate professionals, the international Financial Action Task Force (FATF) will soon issue a report on the state of anti-money laundering regulation in the U.S. FATF has consistently called for formal regulations governing real estate agents and brokers, and it is expected that FATF will renew this call in the new report.
In anticipation of FATF’s report, NAR met with FATF and highlighted their efforts to raise awareness among real estate professionals. In addition, NAR stresses that including real estate professionals in anti-money laundering regulations is unnecessary, as regulated financial entities are best suited to detect and report suspicious activity in connection with the financing of real estate transactions.